Rdio Select launched Wednesday, and while people debate whether it's a radio service or an on-demand service, one thing is certain: It's the tip of a very large digital-music iceberg. The hybrid mobile product that blends streaming radio with the ability to cache up to 25 songs a day might be fusing the two listening preferences together at the perfect time. American consumers are embracing streaming music as the norm and looking for specialized offerings that meet their specific combinations of needs.
“We’ve come out of the dark and into the daylight,” Music Watch founder Russ Crupnick told International Business Times. “I think you're going to see more blending of all of these things.”
The Tipping Point
While music streaming is still treated as a curiosity by the press, the reality is that consumers have officially become more interested in accessing music than owning it, and 2015 will go down in history as the year that the crossover began.
“Last year at this time, streaming was the smallest piece of the pie,” said David Bakula, SVP of analytics and client relations at Nielsen Entertainment. “In 2015, year to date, streaming is the biggest piece of the pie, and it's not really that close. People aren't really seeing the need to own.”
According to Nielsen data, the use of streaming music services increased 95 percent compared to the same time last year, and streaming now accounts for some 34 percent of all revenues generated from recorded music. Asked when the music business might finally transition to one that’s led by streaming rather than owning, Bakula said: “It's already there.”
But even though consumers have crossed the Rubicon, their awareness of the options on the other side is fairly patchy. For example, IFPI research conducted by Ipsos indicates that while nearly two-thirds of Internet users are aware of Spotify, fewer than a third of them have ever heard of Deezer, a competitor based in France with millions of subscribers that’s available in 160 countries. Rhapsody, which was offering unlimited streaming on demand to consumers years before Spotify even launched, still has just 3 million subscribers, compared to Spotify’s 15 million.
But as streaming music continues to grow, services like Rdio Select may give lesser-known players an opportunity to put themselves on consumer radar. “Lower-priced subscription music offerings are necessary in order to meaningfully grow the size and adoption of the digital music market,” said David Pakman, the former CEO of eMusic and a partner at the venture capital firm Venrock.
Pakman doesn’t see services like Rdio Select as competition for full-on subscriptions. “This is really a radio product with extra features as opposed to a fully on-demand streaming service,” he said. But their limitations may make them more attractive to certain segments of the population. “Flexibility will make it appealing,” he added.
How Many Is Too Many?
That flexibility may go a long way in moving more people toward some use of on-demand streaming services like Spotify, Tidal or Apple’s forthcoming service. At the moment, far more people use radio-style, or “non-interactive” services like Pandora than interactive ones. “There are probably a lot of people who don't need to pay for everything that's in the catalog,” Music Watch’s Crupnick said.
But services that offer a little bit of interactivity give users the chance to update consumption habits and routines familiar to them. “For someone who used to download a couple songs a week based on what they heard on the radio, Rdio Select sounds like the analog for that kind of a customer,” Crupnick said.
As the market grows, providers will have to be careful to avoid developing products that are too niche. “Consumers are willing to pay a reasonable fee if they can get the content the way they want it when they want it,” said David Wiesenfeld, the chief strategist at Tru Optik, which monitors Internet piracy and helps content creators monetize that peer to peer sharing. “But you don't want to manage ten different entertainment vendors,” Wiesenfeld added. “Nobody wants that.”
More Negotiations Ahead
What’s still unclear is how many people are willing to pay for these services. Three quarters of Spotify’s users use its free, ad-supported tier, less than five percent of Pandora’s users pay for a subscription, and advertising revenue has not managed to pay for either of them. Pandora has never been profitable, and Spotify still makes less than 10 percent of its revenue from ads.
As the companies building these services, record labels will have to come up with new royalty rates; Rdio had to negotiate with labels to come up with a new, distinct rate for the songs its Rdio Select users save onto their phones.
Rdio Select won’t be the last of these services to launch. With Apple set to unveil its own service this summer and Deezer gearing up for a wider U.S. launch, the competition will only get more intense. But now that streams are the norm, many in the industry feel like there’s a chance to build.
“We're finally trying something different,” Crupnick said.